Chapter

Chapter 2 Developments in International Liquidity

Author(s):
International Monetary Fund
Published Date:
September 1970
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General Survey

THE year 1969 and the first quarter of 1970 witnessed a number of new developments affecting both the quantity and the composition of international liquidity. In part, these developments resulted from deliberate actions specifically directed to adjusting the quantity or to improving the quality of international liquidity. The most important of these actions was the allocation of 3.4 billion of special drawing rights (SDR’s) 1 on January 1, 1970 to 104 participant countries; this allocation was made in accordance with the Resolution of the Board of Governors of the Fund to allocate the equivalent of approximately SDR 9.5 billion for the first basic period covering the three years 1970–72. Developments with respect to accrual of gold to monetary reserves also entered a new phase at the end of 1969, when agreement was reached on the terms under which the Fund would purchase gold from South Africa. In the field of conditional liquidity, action has been taken in the past year to initiate an important increase in Fund quotas under the Fifth General Review. In February 1970 the Board of Governors adopted a Resolution providing for increases in quotas of Fund members totaling $7.6 billion, thereby increasing the potential size of the Fund to approximately $28.9 billion. These three developments are each discussed at greater length in Chapter 3.

Aside from these actions directed specifically to the area of international liquidity, international reserve developments have also been affected by policy actions and economic developments in a number of major countries. The successful adjustment of payments imbalances of three countries—the United Kingdom, France, and Germany—resulted in a notable improvement in the distribution of reserves and permitted substantial progress to be made by the first two countries in repaying credit assistance to which they had earlier had recourse. These repayments were sufficient, in the six months to March 31, 1970, to effect an important net reduction in the credits outstanding under swap arrangements and related short-term credit facilities of central banks and treasuries. Further repayments of swap credits took place in the second quarter of 1970. The strengthening in the position of sterling, in association with the arrangements providing a dollar value guarantee for the major portion of official balances held in sterling by overseas members of the sterling area,2 also contributed to a sizable increase in 1969 in reserves held by these countries in the form of sterling balances; a further increase in these balances took place in the first quarter of 1970.

Official holdings of U. S. dollars in 1969-70 were subject to very substantial fluctuations, which reflected in part unusually large movements in dollar balances of private external holders. These flows were in turn attributable partly to currency speculation and the unwinding of such speculation and, more generally, to foreign borrowing and repayments by U. S. banks, induced by differences in interest rates and in other relevant conditions between money markets in the United States and other countries. In 1969 as a whole, official holdings of U.S. dollars declined, even after allowing for an increase in official balances held in the Euro-dollar market. In the first few months of 1970, official holdings of dollars expanded again in amounts considerably exceeding the earlier decline. In the first quarter of 1970, this increase in reserves held in dollars, together with the allocation of SDR’s, the modest expansionary impetus provided by sales of gold to the Fund, and the increase in official sterling balances, considerably outweighed the contractionary influence of the net repayment of swap credits,3 and global reserves expanded sharply (Chart 3). It is too early to judge the significance of these developments over a single quarter. The developments also need to be judged in the context of the experience of the extended earlier period in which the growth in international reserves had been unusually small.

Chart 3.Composition of Reserves, End of Period, 1960-First Quarter 1970

(In billions of U. S. dollars)

1 Adjusted reserves; see Table 1.

Table 1.Reserves, Credit Tranche Positions, and Other Unused Credit Facilities, End of Years, 1951-69(In billions of U. S. dollars)
CreditOther
ReserveTotalTrancheUnused
End ofForeignPositionsReservesPositionsCredit
YearGoldExchange 1in FundAdjusted 1in FundFacilities2
195133.915.11.750.86.5
195233.915.61.851.36.5
195334.317.01.953.27.1
195434.918.11.854.97.9
195535.418.41.955.77.9
195636.119.22.357.57.5
195737.318.42.358.07.2
195838.018.52.659.17.2
195937.917.93.359.012.8
196038.020.33.661.913.6
196138.920.84.263.912.81.7
196239.321.33.864.413.41.4
196340.223.63.967.713.52.0
196440.824.84.269.813.85.8
196541.924.05.471.212.53.8
196640.924.16.371.317.34.5
196739.526.35.771.518.35.2
196838.927.86.573.217.213.1
196939.1 328.36.774.117.014.5
Annual percentage changes
19523.35.91.0
19531.29.05.63.79.2
19541.76.5−5.33.211.3
19551.41.75.61.5
19562.04.321.13.2−5.1
19573.3−4.20.9−4.0
19581.90.513.01.9
1959−0.3−3.226.9−0.277.8
19600.313.49.14.96.3
19612.42.516.73.2−5.94
19621.02.4−9.50.84.7−17.6
19632.310.82.65.10.742.9
19641.55.17.73.12.2190.0
19652.7−3.228.62.0−9.4−34.5
1966−2.40.416.70.138.418.4
1967−3.49.1−9.50.35.815.6
1968−1.55.714.02.4−6.0151.9
19690.51.83.11.2−1.210.7
Annual average
percentage change0.83.78.52.16.94
Source: International Financial Statistics.

Excluding U.S. holdings of foreign exchange and including throughout the period amounts incorporated in published U. K. reserves in 1966 and 1967 from proceeds of liquidation of U. K. official portfolio of dollar securities.

Unutilized drawing facilities under swap arrangements and related credit arrangements between central banks and treasuries.

Partly estimated.

A percentage change cannot be calculated for 1960 to 1961, the base number being zero.

Source: International Financial Statistics.

Excluding U.S. holdings of foreign exchange and including throughout the period amounts incorporated in published U. K. reserves in 1966 and 1967 from proceeds of liquidation of U. K. official portfolio of dollar securities.

Unutilized drawing facilities under swap arrangements and related credit arrangements between central banks and treasuries.

Partly estimated.

A percentage change cannot be calculated for 1960 to 1961, the base number being zero.

Growth in Total Reserves

In the calendar year 1969, growth in reserves continued at the slow pace experienced in 1964-68, although the sources of reserve growth changed markedly. World holdings of gold, foreign exchange, and reserve positions in the Fund rose by only $0.2 billion on balance, to $76.9 billion. In Table 1, following the treatment in the 1969 Annual Report, these holdings are adjusted to exclude U. S. holdings of foreign exchange (which for the most part represent the counterpart of the use of swaps by other countries and can be drawn on to finance a U. S. payments deficit only where the deficit is a counterpart of a surplus of the country against which the claims are held). Since U.S. holdings of foreign exchange fell by $0.7 billion to $2.8 billion in 1969 as a result of repayments by other countries of short-term assistance, total reserves adjusted to exclude these holdings rose by $0.9 billion to $74.1 billion, or by 1.2 percent. This was broadly in line with the average growth in adjusted reserves over the four previous years from the end of 1964, but well below the average annual rate of reserve growth in earlier periods, e.g., 3.4 percent in the period 1960-64 and 2.5 percent in the period 1951-64.

Official reserve totals fluctuated exceptionally sharply in the course of 1969. Thus, adjusted reserves4 fell by about $2 billion in the first quarter of the year; they then rose by about $2 billion in the second quarter and by a further $3 billion in the third quarter; and they declined by almost $2 billion in the fourth quarter. These fluctuations reflected, in the main, large flows of dollars between private and official holders in response both to uncertainties concerning exchange rates and to differences in conditions in national money markets. The reduction in global reserves in the fourth quarter of 1969 reflected to a predominant degree the reflux of funds from Germany following the appreciation of the deutsche mark. The speculative funds that had flowed into Germany in earlier months had stemmed in part from the Euro-dollar market and other private holdings, thereby increasing global official reserve holdings; only a relatively small portion of the subsequent reflux of funds accrued to official reserves of other countries, thereby reversing the earlier increase in official reserves.

Apart from Germany and the United States, the industrial countries generally experienced some degree of reserve strain in the course of the first nine months of 1969; these strains were manifested by the widespread recourse in this period to drawings on swaps and other short-term credits. Subsequently, these pressures eased, in response not only to the reflux of funds from Germany but also to a narrowing of interest differentials between the United States and Europe and some net repayment of borrowings of U. S. banks from their foreign branches. During the first quarter of 1970 official claims on the United States increased sharply, by $2.4 billion; together with the allocation of SDR 3.4 billion on January 1, this contributed to a large increase in global reserves in the first quarter, by a net amount of $4.4 billion, or 6 percent.

Components of Reserve Growth

An analysis of the components of adjusted global reserves is provided in Table 2 for each year from 1960 through 1969. Table 3 summarizes these data and compares the components of reserve changes in 1969 with the annual average figures for the periods covering the four years to the end of 1968 (1964-68) and the four years to the end of 1964 (1960-64). The period 1964-68 had experienced, as noted in previous Annual Reports, some important changes from earlier trends in both the growth and the composition of reserves. Broadly, accruals to reserves from traditional sources had ceased and become negative on balance; as a result, the increase in global reserves slowed down and became dependent on new reserve sources stemming essentially from credits granted in connection with balance of payments assistance. Official holdings of gold in the four years to the end of 1968 fell by an annual average of $0.5 billion, and official claims on the United Kingdom other than those arising from credit arrangements fell by an average of $0.5 billion. Official claims on the United States, which had increased by an annual average of $1.2 billion in 1960-64, showed virtually no growth in the subsequent four years, although official holdings of dollars outside the United States in the Euro-dollar market increased by an annual average of $0.4 billion in this period for a group of 38 countries for which data are available.5 The average increase of $0.9 billion in global reserves in 1964-68 was more than accounted for by an increase averaging $1.2 billion a year in reserves arising from credit operations, as reflected in lines 5 and 6 of Table 3; of this, about one half represented reserve positions in the Fund arising from use of Fund credit, and one half took the form of claims under swap credits extended by countries other than the United States.

Table 2.Components of Adjusted Global Reserves, 1960-69(In billions of U. S. dollars)
End of YearChange,

End of

1960 to

End of

1964
Change,

End of

1964 to

End of

1969
1960196119621963196419651966196719681969
1.Reserve Positions in the Fund3.64.23.83.94.25.46.35.76.56.70.62.5
(a)Reserve creation in the Fund1.22.11.61.62.03.53.73.14.24.40.82.4
(b)Fund gold holdings2.42.12.22.32.21.92.62.72.32.3−0.20.1
2.Gold Holdings (countries)38.038.939.340.240.841.940.939.538.939.112.8−1.71
3.Foreign Exchange20.320.821.323.624.824.024.126.327.828.34.53.5
(a)Official claims on United States
(i)Liquid11.111.812.714.415.415.413.715.712.512.04.3−3.4
(ii)Certain nonliquid liabilities 20.30.20.40.51.32.65.04.00.43.6
(iii)U. K. portfolio1.41.41.41.41.41.40.5−1.4
(iv)Total12.513.214.416.017.217.315.518.317.516.04.7−1.2
of which
(v)Payable in foreign currencies 30.51.11.41.41.23.02.52.21.40.8
(vi)Payable in dollars12.513.213.914.915.815.914.315.315.013.83.3−2.0
(b)Official claims on United Kingdom
(i)Claims arising from the use of credit facilities,
excluding U.S. credits0.40.10.81.62.51.60.41.2
(ii)Claims held by rest of sterling area countries5.75.95.05.35.45.35.24.24.04.9−0.3−0.5
(iii)Sterling claims held by others1.41.21.21.21.01.00.90.60.30.2−0.4−0.8
(c)Other
(i)Official holdings of Euro-dollars 40.70.71.21.42.32.82.1
(ii)Official claims arising from the use of credit
facilities (excluding U. S. credits) by France0.51.01.0
(iii)Official holdings of currencies other than U. S.
dollars and sterling 50.70.81.01.31.52.21.5
(iv)Residual60.70.50.71.1−0.6−1.2−0.4−1.1−0.8−0.5−0.90.1
4.Adjusted Level of Reserves61.963.964.467.769.871.271.371.573.274.17.94.3
Sources: International Financial Statistics and Fund staff information and estimates.

Partly estimated.

Liabilities other than liquid that enter into U. S. calculations of official settlements deficit.

Covers U. S. Treasury securities, foreign currency series (mainly Roosa bonds), and outstanding Federal Reserve System swap commitments.

Fund staff information and estimates, covering 38 countries.

Fund staff information and estimates, covering 47 countries; see also footnote 6.

Includes important holdings of French francs by countries in the franc area. The negative entries reflect, in the main, differences in coverage and timing; the coverage of the data for U. K. and U. S. liabilities tends to be wider than that of official foreign exchange holdings as shown in International Financial Statistics.

Sources: International Financial Statistics and Fund staff information and estimates.

Partly estimated.

Liabilities other than liquid that enter into U. S. calculations of official settlements deficit.

Covers U. S. Treasury securities, foreign currency series (mainly Roosa bonds), and outstanding Federal Reserve System swap commitments.

Fund staff information and estimates, covering 38 countries.

Fund staff information and estimates, covering 47 countries; see also footnote 6.

Includes important holdings of French francs by countries in the franc area. The negative entries reflect, in the main, differences in coverage and timing; the coverage of the data for U. K. and U. S. liabilities tends to be wider than that of official foreign exchange holdings as shown in International Financial Statistics.

Table 3.Sources of Reserve Changes, End of 1960-End of 1969: Summary(In billions of U. S. dollars)
Annual Average
End ofEnd of
1960 to1964 to
end ofend of
196419681969
1.Gold: country holdings0.7−0.50.2
2.Official claims on the
United States1.20.1−1.5
3.Official holdings of Euro-
dollars 10.40.5
4.Official claims on the
United Kingdom other
than those arising from
credit arrangements−0.50.8
5.Reserve positions in the
Fund0.10.60.2
6.Creditor positions arising
from non-U.S. credit
arrangements0.10.6−0.4
7.Official holdings of cur-
rencies other than U. S.
dollars and sterling 20.20.7
8.Residual 3−0.10.3
Total2.10.90.9
Sources: International Financial Statistics and Fund staff information and estimates.

Fund staff information and estimates, covering 38 countries.

Fund staff information and estimates, covering 47 countries; see also footnote 3.

Includes important French franc holdings by countries in the franc area.

Sources: International Financial Statistics and Fund staff information and estimates.

Fund staff information and estimates, covering 38 countries.

Fund staff information and estimates, covering 47 countries; see also footnote 3.

Includes important French franc holdings by countries in the franc area.

In the year 1969, in which the aggregate addition to reserves was unchanged from the 1964-68 average, there was a sharp change in the components of reserve growth. Countries’ holdings of gold increased by $0.2 billion, following three successive years of decline. This shift reflected the cessation of sales of gold from official stocks to the private sector after March 1968. The change of trend is more apparent if measured from March 31, 1968. In the 12 months preceding that date, countries’ official gold stocks were reduced on balance by $2.6 billion. In the subsequent 12 months, to March 31, 1969, countries’ gold holdings rose by some $0.85 billion, the bulk of this increase being in the reserves of South Africa. In the following 12 months, ended March 31, 1970, countries’ gold stocks rose by a further $0.2 billion; in this last period, an increase of $0.2 billion in gold holdings of the Fund was offset by a corresponding increase in the negative spot gold position of the Bank for International Settlements. In the calculations underlying the proposal by the Managing Director for the allocation of special drawing rights for the first basic period, which were made in the summer of 1969, allowance was made for some modest increase in official gold holdings (which for purposes of estimation was placed in a category including reserve creation through the General Account of the Fund and various minor sources of reserve creation); the arrangements referred to on pages 34-35 of this Report should help contribute to such an increase and, together with the arrangements of March 1968, provide assurance against a renewed decline in gold stocks of monetary authorities.

Official claims on the United States declined by $1.5 billion in 1969; if adjusted for a further increase of $0.5 billion in identified official holdings of Euro-dollars, the net reduction of $1 billion compares with a net increase averaging $0.5 billion a year in the period 1964-68 (Table 3). The tendency toward a reduction in official dollar balances was apparent at the time of the formulation of the Managing Director’s proposal. Since this tendency stemmed from a switch of externally held dollar balances from official to private hands in response to extremely tight monetary conditions in the United States, and in a period in which total dollar balances held by nonresidents of the United States were growing substantially as a result of a large U. S. payments deficit on the “liquidity” basis, this decline in official holdings of dollars appeared unlikely to continue. In the first three quarters of 1969, as indicated later in this chapter, head offices of U.S. banks increased their borrowings from their foreign branches by almost $9 billion; this resulted in an exceptional increase, of broadly the same magnitude, in external private claims on the United States. A considerable reflux of externally held dollars from private into official hands occurred in the first quarter of 1970, and, as noted earlier in this chapter, official claims on the United States increased by almost $2½ billion.

The fluctuations that have taken place in recent years in the U. S. balance of payments, as measured by the balance on official settlements, have to some extent been reflected in fluctuations in U.S. holdings of reserve assets, as well as in U. S. official liabilities. Thus, in 1969, when the United States incurred an official settlements surplus of $2.7 billion (if allowance were to be made for official holdings of Euro-dollars the adjusted figure would be $2.2 billion), the U. S. gold stock increased by about $1 billion, and the U. S. reserve position in the Fund increased by a similar amount. In the two years to March 1970, the United States increased its gold stock by $1.2 billion, to $11.9 billion, and its reserve position in the Fund by $2 billion, to about $2½ billion. The increase in Fund position, reflecting a corresponding reduction in the Fund’s holdings of U. S. dollars, helped to balance and offset the depletion of dollar holdings of Fund members other than the United States which was the counterpart of the U. S. surplus on official settlements account.

These increases in U. S. reserve assets, which resulted from an inflow of short-term funds to the United States rather than from an improvement in its underlying payments position, would enable the United States to limit the increase in its official liabilities in connection with the cessation or reversal of the earlier movements in short-term capital. In the Managing Director’s proposal, an allowance was made for a possible rise in official holdings of U. S. dollars over the ensuing three to five years of some $0.5 billion to $1 billion on average. The recent sharp movements need to be seen in the perspective of the shift in the other direction in 1968 and 1969, and it is too early to form any considered view of the significance of these recent tendencies for the medium-term period. Moreover, to the extent that a substantial proportion of any large official settlements deficit were financed by a reduction in U. S. reserve assets, this would help to avoid an excessive expansion of official holdings of dollars of other countries and of international reserves in general.

The largest single source of reserve growth in 1969, which almost equaled the net change of $0.9 billion in world reserves, was in the form of reserves held in sterling, i.e., official claims on the United Kingdom other than those arising from credit arrangements. The sharp upturn in these balances, which made good about two fifths of the cumulative reduction that had taken place in their dollar value in the four years to the end of 1968, was attributable in part to gains in aggregate reserves by members of the overseas sterling area that hold substantial amounts of sterling in their reserves. In addition, these countries increased the proportion of their reserves held in sterling in 1969, reflecting the improved confidence in sterling, as well as the arrangements concluded in September 1968 providing a value guarantee in U. S. dollars for the major portion of these balances. In the first quarter of 1970, reserves held in sterling rose by a further $0.4 billion, to $5.6 billion. The Managing Director’s proposal had made no specific provision for increases in these reserves, and the U. K. authorities have indicated on a number of occasions that a continuing increase in these balances is not expected.

Credit creation through the General Account of the Fund, as reflected in reserve positions in the Fund adjusted for Fund gold holdings (Table 2), amounted to $0.2 billion in 1969, about in line with its trend value. Creditor positions under swaps granted by countries other than the United States declined by $0.4 billion. Thus, reserve creation as a by-product of credit operations exerted a net contractionary force of about $0.2 billion in 1969, contrasting with net credit creation from this source averaging $1.2 billion in 1964-68 (Table 3, lines 5 and 6). In the early months of 1970, exceptionally large repayments of inter-central-bank credits were made by both France and the United Kingdom. In the six months to March 31, 1970, these repayments reached some $4.4 billion; of this, some $2.2 billion reduced reserves held in the form of swap claims by countries other than the United States.6 Further details of transactions under swap facilities are given at the end of this chapter.

Aside from the increase in reserves held in sterling in 1969, the other large positive component of reserve changes in that year was in the item comprising miscellaneous holdings and residual adjustments, which increased by $1.0 billion (lines 7 and 8 of Table 3). Identified official holdings of currencies other than sterling or dollars rose by $0.7 billion to $2.2 billion in 1969 (line 3c(iii) of Table 2) and included the effect of the appreciation in value of balances held in deutsche mark. The residual item (line 3c(iv) of Table 2 and line 8 of Table 3) includes important holdings of French francs by countries in the franc area, as well as certain official holdings of Euro-dollars and of other foreign exchange assets not separately identified in Table 2.7

The assumption adopted as a basis for the Managing Director’s proposal for the allocation of special drawing rights for the first basic period was predicated on an estimate of future reserve growth from other sources of $1—1.5 billion per annum; $0.5 billion was allowed for a composite item of accrual of official gold holdings, reserve creation through the General Account of the Fund and various minor sources, and the remainder was allowed for official holdings of U.S. dollars. This assumption made no provision for reductions in global reserves arising from net repayments of swap credits or from reduced use of Fund credit. In 1969 aggregate reserve creation was somewhat lower than the projection in the proposal, which related to a three-year to five-year average commencing in 1970; and, in the special circumstances of 1969, the composition of the increase differed markedly from the projection for subsequent years. The main divergences lay in the reduction in official holdings of dollars (which was reversed in the early months of 1970), in the increase in official sterling reserves, and in the reduction in international credit claims. It is, of course, too early to assess these developments and the preliminary indications of developments in 1970 in the light of the eventual outcome in the three-year to five-year period to which the assumptions underlying the Managing Director’s proposal related.

Composition and Distribution of Reserves

At the end of 1969 countries’ gold holdings accounted for 52.8 percent of world reserves; reserve positions in the Fund represented a further 9.0 percent of the total, while the remaining 38.2 percent was held in the form of foreign exchange (Table 4).8 These shares were not significantly different from those of a year earlier; the share of gold declined fractionally in 1969, compared with relatively large falls in each of the three previous years. The shares at the end of 1969 were appreciably changed from those at the end of 1964, when gold accounted for 58.5 percent, reserve positions in the Fund for 6.0 percent, and foreign exchange for 35.5 percent. The composition of the foreign exchange element showed a shift in 1969 away from dollars toward sterling and other currencies. The allocation of 3.4 billion of special drawing rights on January 1, 1970 added 4.6 percent to world reserves. On March 31, 1970, SDR’s accounted for 4.2 percent of world reserves; largely as a consequence of this addition, the share of countries’ gold holdings had dropped to 49.8 percent; reserve positions in the Fund’s General Account amounted to 9.1 percent, and foreign exchange holdings to 36.9 percent.

Table 4.Percentage Composition of Adjusted Global Reserves, End of 1960, 1964, 1968, 1969, and First Quarter 1970
1960196419681969First

Quarter

1970
Gold61.458.553.152.849.8
SDR’s4.2
Reserve positions
in the Fund5.86.08.99.09.1
Foreign
exchange32.835.538.038.236.9
Total100.0100.0100.0100.0100.0
Source: International Financial Statistics.
Source: International Financial Statistics.

There were marked changes in the distribution of reserves among countries in 1969. Reserves of the less developed countries, which have been rising steadily since 1962, increased by $1.3 billion, or 9.5 percent. The increases in 1969 were concentrated among relatively few countries. In contrast, over the longer period from the end of 1960 to the end of 1969, increases in reserves were spread over a wide range of less developed countries, being shared by all geographic areas (Table 5). Less developed countries as a group increased their reserves by 56 percent in this nine-year period; from the low point at the end of 1962, the increase was about 74 percent. On March 31, 1970 less developed countries accounted for 21.3 percent of world reserves, compared with 13.6 percent at the end of 1962. This group of countries accounted for 8.8 percent of world holdings of gold; for 21.4 percent of special drawing rights; for 8.7 percent of reserve positions in the Fund; and for 41.4 percent of world holdings of foreign exchange, the latter comprising over 70 percent of the reserves of less developed countries.

Table 5.Countries’ Official Reserves, Adjusted, 1960, 1964, and 1968-First Quarter 19701(In millions of U. S. dollars)
Total at End of PeriodComposition of Reserves at End of March 1970
Reserve
MarchpositionsForeign
19601964196819691970GoldSDR’sin the Fundexchange
Industrial Countries
United States19,35916,24012,18214,18315,40011,9039202,577
United Kingdom5,0943,6912,4222,5272,7101.469305936
Total24,45319,93114,60416,71018,11013,3721,2252,577936
France2,2725.7244,2013,8334,1263,544166417
Germany 27,0327,8829.9487,1297,3664,0792223022,763
Italy 33,2513,8245,3425,0055,0802,9781208851,097
Belgium and Netherlands3,3694,5714,6504,9175,2003,2501766661,108
Switzerland2,3243,1203,9323,9953,5872,659928
Other industrial Europe 41,8383,3133,4763,3913,2871,0541263691,741
Total, industrial Europe20,09328,44431,55928,28028,65917,5708122,2218,054
Canada1,9912,8903,0463,1063,5988791335152,070
Japan1,9492,0192,9063,6544,0584691336842,773
Total, industrial countries48,48453,28452,11551,75054,42532,2902,3035,99813,833
Primary Producing Countries
Other European countries 52,3583,9094,2204,4144,4752,1581131342,074
Australia, New Zealand, and South Africa1,3122,6862,9902,7712,9201,2721524251,071
Total, more developed areas3,6706,5957,2107,1857,3953,4302655593,145
Western Hemisphere2,9552,8553,9604,5005,1501,1153063563,380
Africa 62,1701,5902,4252,9153,3704201561112,675
Middle East 71,4152,3203,2502,9403,0801,01531681,965
Other Asia3,0903,0854,0904,6954,985735206863,960
Total, less developed areas9,7309,91013,89515,21016,7503,45069962111,985
Grand Total61,88569,78873,22274,14478,57039,1703,2677,17828,960
Source: International Financial Statistics.

Excluding CMEA countries, mainland China, etc.; also excludes U. S. holdings of foreign exchange but includes U. K. dollar portfolio. Totals may not add because of rounding and because some area totals include unpublished data.

Includes the Bundesbank’s investment in U. S. and U. K. Treasury paper acquired in accordance with the U. S.-German agreements of 1967 and 1968 and the 1968 U. K.-German agreement. On March 31, 1970 these investments totaled $601 million.

Includes swap claims and nonmarketable U. S. Government securities.

Austria, Denmark, Luxembourg, Norway, and Sweden.

Finland, Greece, Iceland, Ireland, Malta, Portugal, Spain, Turkey, and Yugoslavia. Also includes unpublished gold reserves of Greece and an estimate of gold to be distributed by the Tripartite Commission for the Restitution of Monetary Gold.

Excluding South Africa and the United Arab Republic.

Cyprus, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Saudi Arabia, the Syrian Arab Republic, and the United Arab Republic.

Source: International Financial Statistics.

Excluding CMEA countries, mainland China, etc.; also excludes U. S. holdings of foreign exchange but includes U. K. dollar portfolio. Totals may not add because of rounding and because some area totals include unpublished data.

Includes the Bundesbank’s investment in U. S. and U. K. Treasury paper acquired in accordance with the U. S.-German agreements of 1967 and 1968 and the 1968 U. K.-German agreement. On March 31, 1970 these investments totaled $601 million.

Includes swap claims and nonmarketable U. S. Government securities.

Austria, Denmark, Luxembourg, Norway, and Sweden.

Finland, Greece, Iceland, Ireland, Malta, Portugal, Spain, Turkey, and Yugoslavia. Also includes unpublished gold reserves of Greece and an estimate of gold to be distributed by the Tripartite Commission for the Restitution of Monetary Gold.

Excluding South Africa and the United Arab Republic.

Cyprus, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Saudi Arabia, the Syrian Arab Republic, and the United Arab Republic.

Reserves of the more developed primary producing countries at the end of 1969 were of much the same magnitude as a year earlier. This group accounted for almost 10 percent of global reserves at the end of 1969, much the same share as five years earlier. Gold holdings as a percentage of their total reserves declined from 51 percent at the end of 1968 to 49 percent a year later, as a result mainly of a decline in South Africa’s reserves, which have a high gold’ component.

The share of the industrial countries in world reserves continued to decline in 1969. Reserves of these countries at the end of that year totaled $51.8 billion, equivalent to about 70 percent of the world total and not greatly different from the level of five years earlier when this group accounted for about 75 percent of world reserves. Reserves for the group declined marginally in 1969, and there were marked changes in distribution among individual countries. As noted earlier in this chapter, the United States’ holdings of gold, together with its reserve position in the Fund, increased by $2.0 billion; Japan’s official reserves rose by $0.7 billion, and a further increase in the first quarter of 1970 brought its total reserves above $4 billion, double the level of two years earlier. In counterpart, Germany’s reserves fell by $2.8 billion in 1969 as a whole, while the reserves of France and Italy each declined by more than $0.3 billion.

These movements in aggregate reserves entailed a substantial redistribution of gold and of reserve positions in the Fund. The exceptionally large German deficit in the final quarter of 1969 and the relatively strong improvement in the official reserve positions of the United States, Canada, and Japan were the main factors accounting for a large shift of Fund positions from Germany to the other three countries. Similarly, the increase in U. S. gold holdings had its main counterpart in sales by Germany and France to finance their external deficits. Canada’s total reserves showed virtually no change over 1969 as a whole; its reserve position in the Fund rose by $270 million, largely at the expense of its holding of U.S. dollars. Canada’s reserves rose at an accelerating rate in the early months of 1970. The major improvement in the net reserve position of the United Kingdom in 1969 and in the first quarter of 1970 was reflected mainly in repayments of central bank credits, discussed below.

As noted earlier in this chapter, the course of official reserves in 1969 was influenced still more markedly than in earlier years by flows to and from commercial bank holdings of foreign exchange. The very large increase in borrowings by the head offices of U.S. banks from their foreign branches, of almost $9 billion over the first three quarters of the year, induced substantial flows from money market assets denominated in European currencies for investment in the Eurodollar market. These flows caused strains on official reserves and on domestic liquidity in several European countries. In a number of these instances, the monetary authorities replenished their holdings of foreign exchange by drawing on swap facilities. The authorities of a number of European countries also sought to counter the pressures created by the Euro-dollar market by regulating the net foreign asset position of their commercial banks. (See page 92.)

In the course of 1969 as a whole, the net spot foreign currency positions of commercial banks in the leading industrial countries other than the United States were reduced on balance; a further reduction took place in the first quarter of 1970. In the course of 1969, banks in most European countries, and particularly those in France, Germany, and Italy, reduced their net foreign positions in response either to directives from the monetary authorities or to meet domestic liquidity needs. In contrast, banks in Japan and, to a lesser extent in Canada, increased their net foreign positions. In Japan the authorities encouraged the banks to repay foreign borrowings, which had the effect of limiting the increase of official reserves.

Complementary to holdings of reserves, which may be used to finance payments deficits without policy conditionality, Fund members had available at the end of May 1970 conditional drawing rights in the form of unutilized credit tranches in the Fund to a total of over $17 billion. These conditional credit facilities will be increased for members to the extent of the increases in quotas taken up under the Fifth General Review. For those Fund members that are currently making use of the Fund’s resources in the credit tranches, the increase in quotas will add further to credit tranche positions, since a part or all of the gold subscription to the quota increase will reduce outstanding purchases in the credit tranches rather than, as for other members, increasing the member’s gold tranche position. To the extent that gold payments by members are alleviated (see pages 33-34), the effect of the initial impact of the increase in quotas in increasing countries’ reserve positions in the Fund or their credit tranche positions at the expense of countries’ gold holdings will be reduced.

In addition to these conditional credit facilities with the Fund, industrial countries at the end of 1969 had credit facilities with national central banks and treasuries of $19.9 billion. This total of ceilings under swap arrangements was virtually unchanged compared with the total at the end of 1968, following a series of sharp increases in earlier years (Table 6 and Chart 4). In 1969 repayments of swap credits utilized exceeded drawings of these credits by $1.4 billion. As a result, unutilized swap facilities increased by a similar amount and reached $14.5 billion at the end of 1969.

Table 6.Swap Facilities and Related Credit Facilities of Central Banks and Treasuries, 1961-69(In millions of U. S. dollars)
196119621963196419651966196719681969Total,

1961-69
Memorandum Item,

First

Quarter

1970
I. Ceilings at the end of period1
U.S. Treasury arrangements (1961) and
Federal Reserve System swap net-
work (1962-69)5759002,0502,3502,8004,5007,08010,50510,98011,230
Other facilities (excluding credit lines
under the regular FRS network)
EEC mutual short-term support fund1,000 2
In support of the pound 3900(250)(3,330)1,7101,9803,4555,7755,5003,975
In support of the Canadian dollar(500)(900)
In support of the Italian lira92590260510
In support of the French franc2,3002,250800
In support of the Belgian franc(100)
In support of the Danish krone(200)
In support of the Spanish peseta300300
U. S. Treasury ad hoc swap line with
the Netherlands Bank126
Nordic swap facility (Denmark, Fin-
land, Iceland, Norway, Sweden)404040404081818181
U. S. Treasury foreign exchange agree-
ments with Latin American countries
and Philippines2322208596141188225230225225
Total1,7071,6602,4256,7414,6916,70810,96719,88119,89618,121
II. Utilization
U. S. Treasury arrangements of 1961
Drawings46150196
Repayments−46−150−196
Federal Reserve System swap network
Drawings by System4207674756907102,0461,2076957,01030
Repayments by System−190−613−564−835−565−565−2,551−797−6,680−145
Drawings by United Kingdom251,3701,7656251,3502,0457957,975
Repayments by United Kingdom−25−1,170−1,490−750−650−1,945−1,295−7,325−650
Drawings by other countries250951803025711,9491,6124,959900
Repayments by other countries−250−45−230−102−425−1,777−2,130−4,959−100
Total drawings6708872,0252,4551,6373,9675,2013,10219,944930
Total repayments−440−683−1,964−2,325−1,417−1,640−6,273−4,222−18,964−895
Net drawings230204611302202,327−1,072−1,12098035
Facilities in support of pound (excluding
regular swaps with FRS)3
Drawings9042509058371,4332,0152,5105669,420
Repayments−904−250−500−957−330−1,000−715−1,670−6,326−1,524
Net drawings405−1201,1031,0151,795−1,1043,094−1,524
Facilities in support of Canadian dollar
(1962), Italian lira (1964), French
franc (1968 and 1969), and Danish
krone (1969) (all excluding regular
swaps with FRS)
Drawings1002506001,7902,740
Repayments−100−250−150−1,090−1,590−900
Net drawings4507001,150−900
Other facilities 4
Drawings1263335464
Repayments−126−203−329
Net drawings126−123132135
Total facilities 4
Drawings9509201,1373,1803,2923,0706,1088,3145,79332,764930
Repayments−950−690−933−2,714−3,282−1,747−2,640−7,264−7,185−27,405−3,319
Net drawings230204466101,3233,4681,050−1,3925,359−2,389
of which
Drawings by United States230154−89−1451451,607−1,470−102330−115
Drawings by United Kingdom6051559781,7151,895−1,6043,744−2,174
on U. S. arrangements 3238401266950960−6652,150−1,450
on non-U. S. arrangements 3367−246712765935−9391,594−724
Drawings by other countries50−502001466253141,285−100
on U. S. arrangements50−50200146172−183335800
on non-U. S. arrangements453497950−900
Sources: U. S. Federal Reserve, Bulletins and Annual Reports; U. S. Treasury Department, Bulletins and Annual Reports; Bank of England, Quarterly Bulletins; United Kingdom, Financial Statement and Budget Report 1970/71; Deutsche Bundesbank, Monthly Bulletins and Annual Reports; Banca dTtalia, Annual Reports; Conseil National du Credit, Annual Report; Banque de France, Balance Sheets; official announcements; and other central bank reports and balance sheets.

Parentheses indicate that part of the maximum ceiling represented by the figure in parentheses had been canceled before the end of the year; the entire amounts are included in the totals.

Subject to negotiation, drawing rights can be increased by $1,000 million to $2,000 million.

Fund staff estimates compiled from data available in the sources indicated. Since the data on utilization are derived in a number of cases from amounts outstanding at the end of quarterly periods, gross drawings and repayments may be subject to a significant margin of error.

Excluding transactions between the United States and the Latin American countries and the Philippines.

Sources: U. S. Federal Reserve, Bulletins and Annual Reports; U. S. Treasury Department, Bulletins and Annual Reports; Bank of England, Quarterly Bulletins; United Kingdom, Financial Statement and Budget Report 1970/71; Deutsche Bundesbank, Monthly Bulletins and Annual Reports; Banca dTtalia, Annual Reports; Conseil National du Credit, Annual Report; Banque de France, Balance Sheets; official announcements; and other central bank reports and balance sheets.

Parentheses indicate that part of the maximum ceiling represented by the figure in parentheses had been canceled before the end of the year; the entire amounts are included in the totals.

Subject to negotiation, drawing rights can be increased by $1,000 million to $2,000 million.

Fund staff estimates compiled from data available in the sources indicated. Since the data on utilization are derived in a number of cases from amounts outstanding at the end of quarterly periods, gross drawings and repayments may be subject to a significant margin of error.

Excluding transactions between the United States and the Latin American countries and the Philippines.

Chart 4.Swap Facilities and Related Credit Facilities of Central Banks and Treasuries, 1961-First Quarter 1970

(In billions of U. S. dollars at end of period)

New credit facilities were established among the central banks of major countries; special credits were granted by Germany in May for the recycling of short-term speculative funds, and new credits of $0.6 billion were extended in August 1969 to France by the other members of the European Economic Community and by the Bank for International Settlements. Early in 1970 the central banks of the EEC countries established a mutual short-term support fund of $1 billion, which could be increased to $2 billion under certain conditions. In the spring of 1970 negotiations were in progress on the establishment of additional arrangements among these countries under which credits up to a further $2 billion could be made available on conditional terms for periods up to two or three years. In the first quarter of 1970 Italy arranged additional credit facilities with the United States totaling $0.5 billion, in part under the reciprocal swap network centered in the Federal Reserve.

Drawings outstanding under inter-central-bank credit arrangements at the end of March 1970 had been reduced to about $3.0 billion compared with the peak levels of $6.8 billion, which were reached in December 1968 and in September 1969. This reduction reflected substantial repayments in the six months to March 31, 1970 by both the United Kingdom ($3.0 billion) and by France ($1.3 billion) which more than offset net drawings of $0.5 billion by Italy. Repayments continued on a substantial scale in the second quarter of 1970. By April 1970 France had repaid all individual central bank indebtedness. The United Kingdom in the second quarter reduced its indebtedness by $0.4 billion, reducing its total short-term and medium-term debts to $3.5 billion, compared with a peak of $8 billion at the end of 1968.

The unit of value of special drawing rights is equivalent to 0.888671 gram of fine gold. This is equivalent to one U.S. dollar of the weight and fineness in effect on July 1, 1944.

See Annual Report, 1969, page 75.

Such repayments reduce global reserves to the extent that the claims held by the creditors were counted as reserve assets. The criterion used in this context is whether there is reasonable assurance that the claims can be mobilized in case of balance of payments need. In this Report, swap credits granted by countries other than the United States are classified in this way.

Subsequent references in this chapter to reserve totals apply to reserves adjusted to exclude U.S. holdings of foreign exchange.

Private short-term claims held by nonresidents on the United States increased by an annual average of $0.9 billion in 1960-64 and by $2.1 billion in 1964-68.

The remaining $2.2 billion of repayments of swap credits in this period were made to the United States; it may be recalled that claims arising from these credits are not included in reserves as adjusted for analytical purposes in this chapter.

The residual item of Table 2 has in recent years been persistently negative, reflecting the underreporting of foreign exchange assets compared with the coverage of foreign exchange liabilities. The miscellaneous holdings of foreign exchange assets referred to above have reduced the size of this negative entry.

As noted earlier, the references to reserve totals in this chapter apply to reserves adjusted to exclude U.S. holdings of foreign exchange.

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